Recent improvement in business conditions in the Northeast
region of the country lost momentum this month. The Federal Reserve
Bank of New York reported that its May Empire State Factory
Index of General Business Conditions fell to 19.11, its
lowest level this year. Nevertheless, the May level suggests positive
growth in factory sector activity but it fell short of Consensus
expectations for a reading of 30.0.

The figure is a diffusion index. Since the series' inception
in 2001, there has been a 75% correlation between its level and the
three-month change in U.S. factory sector production. Like the
Philadelphia Fed Index of General Business Conditions, the Empire State
Business Conditions Index reflects answers to independent survey
questions; it is not a weighted combination of the components. The
series dates back only to 2001.

Deterioration amongst the separate survey questions was
widespread this month including new orders, shipments and inventories.
The employment index, however, improved to 22.37 which was the series'
highest level. Since inception there has been an 87% correlation
between the employment index and the three-month growth in factory
sector employment as reported by the Labor Department.

Continuing it earlier upward momentum, the prices paid index
rose to 44.74, its highest since September 2008. Since inception there
has been a 76% correlation between the index of prices paid and the
three-month change in the core intermediate materials PPI.

The Empire State index of expected business
conditions in six months fell m/m to its lowest level since
August. Virtually all of the component series fell with the exceptions
of capital expenditures and technology spending. They both remained
near the highest levels since before the recession began.

The Empire State Manufacturing Survey is a monthly survey of
manufacturers in New York State. Participants from across the state in
a variety of industries respond to a questionnaire and report the
change in indicators from the previous month. Each index is seasonally
adjusted. Respondents also state the likely direction of these same
indicators six months ahead. For more on the Empire State
Manufacturing Survey, including methodologies and the latest report,
click here.The Empire State data is available in Haver's SURVEYS
database.